A loan term, or how long it takes to pay off your loan, is just one of the many details to think about when you get a car loan – especially if you're getting that loan with bad credit. Some decisions you make during auto financing, like picking the loan term, impact you for many years to come, which is why it's so important to make smart choices right from the start.

Why Your Loan Term Is Important

One reason the length of time you spend paying for your car loan is important is because the longer you make payments, the more money it costs you due to interest.

Interest is what a bank or other lender charges you to borrow money. With bad credit, you're likely to have a higher interest rate than someone with better credit, and the higher the interest rate, the higher your interest charges are going to be. Interest is paid on the amount of principal you owe, so the quicker you pay off your auto loan, the less you're going to pay.

We've done the math for you based on a $10,000 loan at a 12% interest rate. As we change loan term, you can see how having a shorter loan term can save you money in the long run. Let's take a look:

  Loan Term 

  Monthly Payment 

  Total Interest Paid 

  Total Cost 

48 months




60 months




72 months




84 months




The longer you stretch your loan payments, the lower your monthly payment. It's easy to become too focused on the monthly payment and to lose sight of the fact that even though your monthly payment is lower, you're paying more overall.

In our example, choosing an 84-month loan term as opposed to a 48-month term saves you less than $100 each month, but costs you $2,188 more in total interest charges.

When you need a bad credit car loan, you should keep the total cost in mind when choosing your loan term. Even though extending the loan can get you a lower monthly payment, it isn't a good idea if it's costing you thousands of dollars more in interest charges. But it's also a balancing act that you need to compare with what you can afford to spend each month. It's also not a smart idea to go broke trying to aim for the shortest loan term available.

Drivers Lane Tip: A good rule of thumb is to pay as much as you can comfortably afford for the shortest amount of time possible. This way, you balance an affordable loan payment with reasonable interest charges.

More Reasons to Keep Your Loan Term Short

Choosing the Right Loan Term Another reason it's a better idea to have a short loan term is because vehicles are depreciating assets, meaning they lose value over time. Depreciation begins as soon as you drive a new car off the lot, and after approximately five years, vehicles are typically worth as little as 40% of their original MSRP.

Generally speaking, the shorter the loan term you can afford, the better off you'll be in the long run. In our opinion, five years (60 months) is the maximum auto loan term we'd recommend.

Many lenders offer extended loan terms stretching to 72, 84, and even 96 months these days. A 96-month loan is eight years – do you really want to be paying off this loan eight years from now?

This brings up yet another reason shorter loan terms can be beneficial: maintenance and repairs. What can happen to a car over eight years? The answer is a lot. If your vehicle doesn't have the best reliability rating, you could be stuck still paying the loan on a car that spends more time in the shop than on the road.

Find the Dealer You Need

Now that you know why it's important to choose a shorter loan term rather than a longer one if you have bad credit, you need to find a dealership that has the lenders who can work with you. Why not start your car buying journey here at Drivers Lane?

We work with a nationwide network of special finance dealerships that have the lending resources you need to get financed with bad credit, no credit, or even bankruptcy. Simply fill out our easy online auto loan request form and we can help match you to a local dealer. Don't wait any longer. Get started right now!